Viking

The problem is there is still much important information we do not know. How bad will it get in the current clusters: NY City and Washington State? How will the medical situation impact investors psychology? Will new clusters form in other urban areas in the US? Will US go to full lockdown? How long will the lock down last? What will the US and global economy look like in 1 month? 3 months? Will the virus come back in the fall? Will a treatment be discovered? Will a vaccine be discovered? Investment = Safety of principal + adequate return Rule #1: don’t lose what you got The hurricane is off the coast. I am getting a better idea of its likely path. We will know much more in 14 days. My strategy right now is to buy a small amount of quality on big down days (10-20% of my portfolio) and sell them on big updays for small gains (2-5%). Rinse an repeat. In another week or two perhaps i will switch to buy and hold and build out my portfolio. It will depend on the answers to the questions above (the facts will inform my investment decisions). I am trying to tell myself to be patient as this could get much worse. Current favourite picks (to trade): GOOG, MSFT, Facebook, telcos

Orthopa, great post (long one up top); it covered the human side of the virus. When i watched the 45 minute Wuhan documentary 3 weeks ago i had my holy shit momemt. It laid out in a very graphic way the human destruction the virus causes. And then Iran and Italy gave us examples 2 and 3. The key, i believe, is leadership. Korea initially blew it (their leader was in denial); he was forced to the background and their experts took over. They recovered. The key for the US moving forward continues to be Trump; i have said this many times but Senate Republicans need to put their big boy pants on and work with the House Democrats and push Trump to the sidelines and get at this thing. Managing this crisis is beyond his skill set. It really is that simple. He needs to be pushed into the shadows and professionals need to be empowered to do what needs to be done (right now his yes people are empowered to do what Trump wants done).

US confirmed cases are exploding. Just passed both South Korea and France Total = 9,371 New cases March 16 =. 983 March 17 = 1,748 March 18 = 2,974 This rate of increase will be something to watch in the coming days...

Why, if my position is strong and I have money, and my stock is cheap why shouldn't I do a buyback? If you were a moron and were doing buybacks when your stock was at 30x earnings, sure sucks to be you. Buy guess what, the smart thing is to do buybacks when your stock is cheap, not when it's expensive. Starbucks has a very strong brand. This move hurts their brand. Look at the negative press from today; it is only the beginning - they are going to continually get skewered. Perception is very important.

Why? What exactly did they do wrong? Let’s jack up the Capex on all of these companies so the already razor thin margins in the airline industry tighten even more and increase prices putting air travel back out of reach for the average American. The issue is 2008-09 is still fresh in many people's minds. Lots of ordinary people lost everything in the housing crash. Lots of big corporations got bailed out. Same thing looks to be happening again. Warren feels the scale is tipped too much one way. Lots of voters agree with her.

I wish people were spending their scarce resources finding solutions to the current issue: the virus. Her time would be better spent understanding Taiwan, Singapore and Hong Kong responses and how to fast adapt to US. Otherwise Ackman's fear will play out. And then she won't have to worry about stock buybacks because the US will be in a depression. Companies would be idiots to do a stock buyback right now... worse than tone-deaf... hello Starbucks? (That CEO just became famous... this will likely go down as one of the great gaffe's of this whole sorry episode.)

It looks to me like airlines, hotels, restaurants, cruise industry, travel industry, Boeing are all essentially bankrupt as of today. Small 3-4% gains but i am ok with hitting singles right now. Most will not survive with no revenue if we do a soft lockdown that next 2-3 months. We know the government is going to try and bail some out. That is a tough thing for an investor to figure out (who the winners and losers are going to be). Didn’t work great for bank investors in 2008 (BAC and C). That's why you have to understand your circle of competence. People get slaughtered because they think they know more than they do. By the way, are you still like 90%+ cash, Viking? 100% cash as of right now. I buy a little on the big down days and have been selling it all the next day (when it pops). Crazy market action. I am going to be very cautious until i get better visibility of what the world looks like after peak virus. US and Canada have completely screwed up testing. What is happening with virus containment is the key to what happens in financial markets... until this is better managed and understood people are investing with uninformed opinions. If we sell off into the close i will likely buy a few things...

It looks to me like airlines, hotels, restaurants, cruise industry, travel industry, Boeing are all essentially bankrupt as of today. Most will not survive with no revenue if we do a soft lockdown that next 2-3 months. We know the government is going to try and bail some out. That is a tough thing for an investor to figure out (who the winners and losers are going to be). Didn’t work great for bank investors in 2008 (BAC and C); the companies survived but shareholders had their head handed to themselves. Shadow banking system might be the next shoe to fall... overleveraged companies. Oil and gas industry... Looks to me like their might be a real bifurcation in the market. A stock pickers market. 30% of companies weather the storm and 70% get shit kicked. Not great for ETF holders.

Youtube video: Understanding where we are today in the crisis is pretty straight forward. Where the economy is going in the next week or two is coming in to focus. What the economy looks like in 3-6 months is very unclear. Ackman sees two paths available: 1.) continue down the current road of soft lock down will put the US in a depression. The reason is pretty simple: current measures will essentially put all hospitality companies in bankruptcy (airlines, hotels, restaurants, cruise etc). As layoffs happen, the next wave will take out another band of companies. This will continue in successive waves until most companies are insolvent (Great Depression). 2.) or the US and the globe does a coordinated 30 day full lock down (Wuhan style). This will give governments time to establish a South Korea type testing system. After 30 days you slowly get back to new normal. New normal will not fully happen until a vaccine is developed in 12-18 months. He is buying stocks today because he thinks Trump will pick 2. The second part of this statement is not being communicated by news organizations who are saying ‘but he is buying stocks’. Holy shit.... PS: CNBC had Bill Miller on directly afterwards and he advised buying US banks... crazy cheap at current prices :-)

Great idea. I would love for Trump to be “sheltered in place”. The sooner the better :-)

The government should get Buffett to offer his suggestions of how to structure a bailout. Taxpayers would benefit and therefore would be more likely to support the many bails outs that will be given. The companies, of course, would much rather negotiate with Trump / politicians.

Eric, you state: “ The downturn itself is essentially being ordered by the government. This thing would blow through quickly if there were no "social distancing".” I always like to look at the real world to understand what really happens when the rubber hits the road. Theories are nice but its always good to toggle to the real world. I am only aware of a couple of jurisdictions that tried no social distancing: Wuhan China, Iran, italy etc. Every one of these areas after deciding they did not need social distancing quickly reversed course. And they all experienced a humanitarian disaster. Are you aware of any country that has the virus in numbers that is currently not aggressively employing social distancing as a core part of its strategy? I am not and i would love to follow how the virus trends for them.

Posted Sunday night: Calculated Risk blog just called recession for US. That was fast. https://www.calculatedriskblog.com/2020/03/sunday-night-futures-limit-down.html First, from Goldman Sachs today: “[W]e now expect real GDP growth of 0% in Q1 (from +0.7%), -5% in Q2 (from 0%), +3% in Q3 (from +1%), and +4% in Q4 (from +2¼%), with further strong gains in early 2021. This takes our 2020 GDP forecast down to +0.4% (from 1.2%).” Goldman Sachs currently thinks the recovery will be in Q3 and be fairly rapid. I think the timing is unknown, and the recovery will probably be tepid at first - and then pickup. With the sudden economic stop, and with many states shutting down by closing down schools, bars and restaurants - combined with the sluggish government response, both on testing and fiscal stimulus - my view is the US economy in now in a recession (started in March 2020), and GDP will decline sharply in Q2 (as Goldman Sachs is forecasting). The length of the recession will depend on the course of the pandemic, and that is unknown at this time. Unfortunately the usual leading indicators aren't useful with this type of event.

50%? Not if we're all staying home like right now. We may not even reach 1% if we're all isolated at home, and thereby flattening the curve. The price of such success is that, at that point, who's going to have the confidence to go outside again without having a vaccine in hand? And if we've got to wait 12-18 months for a vaccine? Therefore, a bounce-back in the 2nd half of the year appears unlikely to occur. Northern Italy locked down some cities where they had their first outbreak. The lock down did not seem to help those areas (their hospitals got overwhelmed). I am shocked that some countries in Europe have not taken more stringent measures before now as they seem to be 10-14 days in front of North America. It will be interesting to see how the UK does. I continue to think Washington State will be key to watch; do numbers keep increasing or does rate of increase start to slow due to measures taken. Lots we do not understand. Big tradeoffs.

The virus hasn’t actually hit the US yet. Right now its a mental exercise for businesses and people. The medical and economic pain actually hasn’t happened yet. When the shit storm hits my guess is we will see lower stock prices. Right now the meteor is about a week away... each day we can expect the news flow to worsten. I am not optimistic. Everyone should watch the entire Trump news conferences from yesterday and today. Nothing like going straight to the source to learn what the situation really is. It is clear that the administration started taking the virus seriously about the middle of last week. They basically told the States today that they are on their own to solve this thing. Any support from the Federal government will be slow in coming because of the red tape involved and because they are only now getting their act together. But they will have some really great things in a week or two. (Now where have we heard that before?) Trump also had what may well be quote of the decade: something like “no one in my administration was thinking about Coronavirus a month ago” as his reason why planning is only now getting off the ground. OMG He was also asked to rate on a scale from 1 to 10 his administrations response to the virus to date. He said ‘10’ with absolutely no hesitation. (Now maybe Trump was thinking 1 was great and 10 was terrible?). You can’t make this stuff up.

We are not seeing China getting back to normal yet. It looks like L shaped recovery, with hope it will become U in time. September is not very far away and it could be back, mutated and meaner than ever. So much we still do not understand.

Explain to me what economic activity is worthwhile undertaking with 0% risk free interest rates can’t be done with 1%. Europe and Japan went this route and have nothing to show for it, other than the destruction of their financial system. US is probably next. My read is Trump has completely politicized the Fed the past 24 months. His constant intimidation and jawboning has had an enormous effect. The Fed did exactly what the President wanted when he wanted it. Period. The problem is what the president wanted might not be what the Fed should do. The question I am asking is what will Trump do next to get the stock market up? I guarantee you that something is coming. Someone suggested closing the stock market; yes, something crazy like that. Trump is highly motivated. And he is wickedly creative. And he has nothing to lose. And there is no accountability to anything he does.

As expected... Federal Reserve slashes rates to zero, restarts QE - https://finance.yahoo.com/news/federal-reserve-cuts-rates-to-zero-restarts-quantitative-easing-qe-210001968.html The Federal Reserve made an emergency announcement Sunday afternoon by announcing that it would be cutting interest rates to zero for the first time since the financial crisis. The central bank said it will use its “full range of tools” to battle the economic impacts of the novel coronavirus and announced quantitative easing in the form of at least $700 billion of asset purchases. It also encouraged banks to provide credit to the economy by eliminating reserve requirements and allowing the financial firms to tap into capital and liquidity buffers. In a global effort, the Fed also announced standing U.S. dollar liquidity swap line arrangements in coordination with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank.

This is the problem. We can all speculate, but we simply cannot know whether the causes of poor investment performance are ongoing or whether the company can improve. Lumpiness I can deal with. In fact I like it - the market pays a premium for predictability that (all else equal) I’d rather not pay. All I care about is whether Fairfax can adapt. “The best predictor of future performance is past performance.” 10 years is a good amount of time. Much better than using the first 10 years, which an investor probably should throw out (given the company has changed immeasurably since then).

Stevie, my comment was more along the lines that this crisis will follow a very different trajectory than 2008 (with no idea of magnitude). People often get anchored in the past to make sense of the current situation. I am trying to learn what is really going on in China and Europe; that seems to be informing what will perhaps happen here much better than what happened in 2008. There is so much we still do not know; an open mind and being inquisitive is key. The real question for investors is how low will the stock market ultimately go amd how long will ‘it’ last. Of course no one knows. If this is bear market, which it could be, i think stocks fall on average about 35% and the recession lasts about 10 months. If this is a real doozie stocks could fall 50% from their highs. The policy response from leaders is critical. As of today the US stock market is down 20% from its highs and trading about where it was trading 12 months ago. And the virus has not even hit the US yet. We will know much more but it will take 2 or 3 weeks more to fully understand what is going on. And then the impact will last 4-6 more weeks after that. What a shit storm. We know things are going to get worse we just don’t know how much worse. Not a great set up for stocks. Now perhaps this is all priced in to stocks down 20%; i don’t think so. The wild card, as has been stated already is human ingenuity. My guess is we see lots and something big at some point in the next 12 months, just impossible to predict what and timing.

I agree with you: - Socialism is bad - US stock are much better than Canadian stocks (who wants to own an oil stock right now?) - Trump did not cause the virus

Is this really comparable to 08? Seems more like a supply chain shock than anything. And I’m genuinely asking. When the virus hit China it was largely a supply chain shock in China with a 1-3 month lag (factories closing in China take time to impact North America). And there was also a simultaneous demand shock. This is now rolling though the world. Europe is not making or buying anything. It is coming to North America in a week or so. The ‘event’ by itself is severe, but perhaps manageable. The key moving forward will be the second order effects. And we still do not have much visibility on when and how fast things get better. And what better even looks like. What happens to all the small businesses that go bankrupt? What happens to the hospitality industry? Airlines, cruise ship, hotels, restaurants, event planning etc? We are a service economy. We also have an unprecedented simultaneous demand and supply shock in the oil industry. There is going to be carnage here as long as the Saudi’s keep producing. Oil/energy was a very big part of economic growth in the US. What happens to all the companies that have way too much debt and their cash flow turns negative and they can’t refinance their debt? Lots of smart people have been saying for years the shadow banking system might blow up... and this was before the current crisis came along. I am very confident we will not see a repeat of 2008. I am becoming more confident a recession is coming and if some of the second order effects kick in it could be worse.

Castanza, i think you are going to have two goups coming out of this crisis: the have and the have nots. The ‘have’ countries that manage the crisis well will rebound quicker. The ‘have not’ countries will stagnate. Perhaps like after the great financial crisis. It did not hit all countries the same (it barely impacted Canada).

The risk for the US is if more clusters are allowed to happen. Washington State will be the real time example of what do likely want to avoid at all costs. Testing is the only way to find the clusters (after which you can take aggressive measures to slow the spread). South Korea looks like it is playing a game of whack a mole (find the cluster) and it look to be working for now. The US looks like it is taking the UK approach of letting it infect the herd (with minimal testing)... we do not have any models where this has been successful. It might be. Or not. Much to learn in the next week.

It would be funny (in a sad way) if Trump got rid of Powell and put someone there who would give him negative rates...and that might just be enough to spiral the world into something possibly worse than 2008. Where this really gets wicked are the secondary effects and the tail risks. What if the US policy responses are the wrong ones? The more Trump messes up the worse he makes the situation - a classic negative feedback loop. The real question: what is currently stopping Trump from doing really destructive things? Democratic House is not enough. Will the Republican Senate stand up to Trump? Not so far... The stock market will figure this out at some point and discount it...